- Changes to S&P 500 index will affect how people position in REITs ahead
- S&P Dow Jones Indices stated it would add an 11th sector to its Global Industry Classification Standard
- Looking ahead, the new GICS classification will also further support the REITs sector
Exchange traded fund investors have some exposure to real estate investment trusts through their financial sector positions. However changes to the S&P 500 index will affect how people position in REITs ahead.
The S&P Dow Jones Indices stated it would add an 11th sector to its Global Industry Classification Standard, creating a new Real Estate Sector from the Financial Sector.
“The changes to the S&P 500 index will be implemented after the close of business on September 16, 2016,” Todd Rosenbluth, S&P Global Market Intelligence Director of ETF Research, said in a note. “S&P Global Market Intelligence, which operates independently from S&P Dow Jones Indices, thinks these changes will impact the way investors conduct sector investing.”
For instance, Howard Silverblatt, an index analyst with the S&P Dow Jones Indices, argues that the new REITs sector could sport an above-average dividend yield of 3.5%, behind telecom services and utilities. On the other hand, without the high-yield generating RETIs, the financial sector’s yield will dip to 2.0% from 2.3%.
The Financial Services Select Sector SPDR (NYSEArca: XLF) includes 91 components, 17 of which include REITs that yield more than 3.0%.
These high-yield REITs also have positive outlooks for the rest of 2016. Ken Leon, a REIT equity analyst for S&P Global Market Intelligence, believes these companies have strong cash flows to support dividend growth. For instance, HCP Inc. (NYSE: HCP) was one of 35 U.S. real estate companies that hiked dividends in the first two months of 2016.